The three European Supervisory Authorities (EBA, EIOPA and ESMA – ESAs) issued today their Autumn 2022 joint risk report. The report highlights that the deteriorating economic outlook, high inflation and rising energy prices have increased vulnerabilities across the financial sectors. The ESAs advise national supervisors, financial institutions and market participants to prepare for challenges ahead.
The post-pandemic economic recovery in Europe has dwindled as a result of the Russian invasion of Ukraine. Russia’s war on Ukraine and the disruptions in trade caused a rapid deterioration of the economic outlook. It adds to pre-existing inflationary pressures by strongly raising energy- and commodity prices, exacerbates imbalances in supply and demand, and weakens the purchasing power of households. The risk of persistent inflation and stagflation has risen.
These factors, coupled with the deteriorated economic outlook, have significantly impacted the risk environment of the financial sector. Financial market volatility has increased across the board given high uncertainties. After a long period of low interest rates, central banks are tightening monetary policy. The combination of higher financing costs and lower economic output may put pressure on government, corporate and household debt refinancing while also negatively impacting the credit quality of financial institutions’ loan portfolios. The reduction of real returns through higher inflation could lead investors to higher risk-taking at a time when rate rises are setting in motion a far-reaching rebalancing of portfolios.
Financial institutions also face increased operational challenges associated with heightened cyber risks and the implementation of sanctions against Russia. The financial system has to date been resilient despite the increasing political and economic uncertainty.
In light of the above risks and vulnerabilities, the Joint Committee of the ESAs advises national competent authorities, financial institutions and market participants to take the following policy actions:

Financial institutions and supervisors should continue to be prepared for a deterioration in asset quality in the financial sector and monitor developments including in assets that benefitted from temporary measures related to the pandemic and those that are particularly vulnerable to a deteriorating economic environment, to inflation as well as to high energy and commodity prices.
The impact of further increases in policy rates and of potential sudden increases in risk premia on financial institutions and market participants at large should be closely monitored.
Financial institutions and supervisors should closely monitor the impact of inflation risks.
Supervisors should continue to monitor risks to retail investors, in particular with regard to products where consumers may not fully realise the extent of the risks involved, such as crypto-assets.
Financial institutions and supervisors should continue to carefully manage environmental risks and cyber risks to address threats to information security and business continuity.

Contact:

Solveig Kleiveland, Acting Team Leader | press@esma.europa.eu

Compliments of the European Securities and Markets Authority.
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OECD labour markets bounced back strongly from the COVID-19 pandemic, but the global employment outlook is now highly uncertain according to a new OECD report.
Russia’s war of aggression against Ukraine has caused lower global growth and higher inflation, with negative impacts on business investment and private consumption.
The OECD Employment Outlook 2022 says that while labour markets remain tight in most OECD countries, lower global growth means employment growth is also likely to slow, while major hikes in energy and commodity prices are generating a cost of living crisis.
Since the low point of the pandemic in April 2020, OECD countries have created about 66 million jobs, 9 million more than those destroyed in a few months at the onset of the pandemic.
The OECD unemployment rate stabilised at 4.9% in July 2022, 0.4 points below its pre-pandemic level recorded in February 2020 and at its lowest level since the start of the series in 2001.
The number of unemployed workers in the OECD continued to fall in July and reached 33.0 million, 2.4 million less than before the pandemic.
Looking at individual countries however, the unemployment rate in July remained higher than before the pandemic in one fifth of OECD countries. In a number of countries, labour force participation and employment rates are also still below pre-crisis levels. Moreover, employment is growing more strongly in high pay service industries, while it remains below pre-pandemic levels in many low pay, contact-intensive industries.
“Rising food and energy prices are taking a heavy toll, in particular on low income households,” OECD Secretary-General Mathias Cormann said. “Despite widespread labour shortages, real wages growth is not keeping pace with the current high rates of inflation. In this context, governments should consider well targeted, means-tested and temporary support measures. This would help cushion the impact on households and businesses most in need, while limiting inflation impacts and fiscal cost of that policy support,” he said.

Graph is courtesy of the OECD.
Tight labour market conditions mean that companies across the OECD are confronted with unprecedented labour shortages. In the European Union, almost three in ten manufacturing and service firms reported production constraints in the second quarter of 2022 due to a lack of labour.
Nominal wages are not keeping pace with the rapid rise in inflation. The real value of wages is expected to decline over the course of 2022, as inflation is projected to remain high and generally well above the level expected at the time of relevant collective agreements for 2022. The cost of living crisis is affecting lower-income households disproportionally. They have to devote a significantly larger share of their incomes on energy and food than other groups and were also the population segment falling behind in the jobs recovery from the COVID-19 pandemic.
In these circumstances, supporting real wages for low-paid workers is essential, according to the report. Governments should consider ways to adjust statutory minimum wages to maintain effective purchasing power for low paid workers. Targeted, means-tested, and temporary social transfers to people most affected by energy and food price hikes would also help support the living standards of the most vulnerable.
In the current circumstances, active discussions between governments, workers and firms on wages will also be key. None of them can absorb the full cost associated with the hike in energy and commodity prices alone. This calls for giving new impetus to collective bargaining, and for rebalancing bargaining power between employers and workers, enabling workers to bargain their wage on a level playing field.
Countries should step up their efforts to reconnect the low-skilled and other vulnerable groups to available jobs. About two thirds of OECD countries have increased their budget for public employment services since the onset of the COVID 19 crisis. However, more funding is not enough: employment and training services need to be integrated, comprehensive and effective in reaching out to employers and job seekers.
Improving job quality for frontline jobs should be an urgent priority for governments. More than half of OECD countries set up one-time rewards to compensate workers in the long-term care sector for extra work during the pandemic. Yet less than 30% of countries have increased pay on an ongoing basis.
Contact:

Spencer Wilson | spencer.wilson@oecd.org

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Thank you minister, good afternoon everyone.
It is a pleasure to be back in Prague.
Thank you for hosting us in this beautiful city.
As the minister already outlined, today’s discussions in Ecofin focused on two main topics: financial support for Ukraine and our economic policy response to the war in Ukraine and its economic implications.
As regards financial support for Ukraine, it is excellent news that ministers have endorsed the next part of our exceptional macro-financial assistance programme and agreed to provide national guarantees required to make a further €5 billion available in concessional loans to Ukraine.
This is part of the overall €9 billion exceptional macro-financial assistance package for Ukraine. Its first part of €1 billion was already paid out in early August and we are now working on operationalising the remaining amount in this package.
Obviously, we need to think how we further support Ukraine because Ukraine is an economy at war.
Its economic situation has deteriorated dramatically due to Russia’s protracted war of aggression.
There are estimates that Ukraine’s GDP is set to fall by up to 15% this year. So clearly, Ukraine needs short-term financial assistance to keep the country running on a daily basis and to maintain essential services.
For this year alone, the International Monetary Fund estimates its balance of payments gap at $39 billion.
That does not include costs for the country’s longer-term reconstruction.
Since the invasion began, the EU, its Member States and financial institutions – like the EIB and EBRD – have mobilised €9.5 billion to support Ukraine. But still, more short-term financial assistance will also be needed.
And we will need to look beyond immediate needs.
The long-term costs for Ukraine’s reconstruction are likely to keep growing as long as war continues.
So today ministers also discussed options for funding the long-term reconstruction of Ukraine.
Apart from this, we discussed the policy implications of the war in Ukraine on the EU and our economy, and the necessary policy response.
Clearly, we see a marked economic slowdown in the second half of the year, and we see surging inflation.
So we need to find a delicate balance between promoting growth, controlling inflation and protecting the most vulnerable.
We also see tighter financing conditions and rising borrowing costs – which all reduces governments’ room for policy manoeuvre. And it’s also clear that fiscal support measures should not contradict the ECB’s efforts to reduce inflation.
When we discussed the support measures, these should be targeted and temporary, compatible with the green transition.
One of the major implications of the war in Ukraine is surging energy prices. Correspondingly, the issue of how to address them is very much on everyone’s minds.
This week, the European Commission came with a set of policy proposals – or options – for how we can respond to the situation in energy markets.
I will not go into detail on these measures because they were not part of today’s Ecofin agenda.
In parallel in Brussels, there was an Energy Council which was discussing exactly these energy issues. Thank you.
Compliments of the European Commission.
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Ceiling for remuneration of government deposits to remain at deposit facility rate (DFR) or euro short-term rate (€STR), whichever is lower, until 30 April 2023
Measure aims to preserve effectiveness of monetary policy transmission and safeguard orderly market functioning

To preserve the effectiveness of monetary policy transmission and safeguard orderly market functioning, the Governing Council of the European Central Bank (ECB) today decided to temporarily remove the 0% interest rate ceiling for remunerating government deposits. Instead, the ceiling will temporarily remain at the lower of either the Eurosystem’s deposit facility rate (DFR) or the euro short-term rate (€STR), also under a positive DFR. The measure is intended to remain in effect until 30 April 2023. This change will prevent an abrupt outflow of deposits into the market, at a time when some segments of the euro area repo markets are showing signs of collateral scarcity, and will allow for an in-depth assessment of how money markets are adjusting to the return to positive interest rates.
As it currently stands, the relevant legal framework provides that, if the DFR is negative, government deposits are remunerated up to the DFR or the €STR, whichever is lower. It also foresees a remuneration ceiling of 0% if the DFR is 0% or higher. However, market and liquidity conditions have changed since this ceiling was put in place and a temporary adjustment of the remuneration arrangements, in a context of normalisation of monetary policy, is warranted. The new temporary change to the remuneration does not alter the long-term desirability of encouraging market intermediation, and the ECB calls on relevant depositors to plan for alternative arrangements to central bank deposits.
Government deposits are non-monetary policy deposits accepted by the Eurosystem from any public entities of an EU Member State or any public entities of the European Union, except for publicly owned credit institutions, as laid down in Guideline ECB/2019/7[1] and Decision ECB/2019/31[2].
The revised remuneration will apply as of the start of the sixth maintenance period, i.e. on 14 September 2022, will remain in place until 30 April 2023 and will be reflected in an ECB decision to be published on the ECB’s website and in the Official Journal of the European Union.
Contact:

For media queries, please contact William Lelieveldt | william.lelieveldt@ecb.europa.eu | tel.: +49 69 1344 7316

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Today, the Commission is proposing to fully suspend the EU’s Visa Facilitation Agreement with Russia. A country like Russia, waging a war of aggression, should not qualify for visa facilitations as long as it continues conducting its destructive foreign policy and military aggression towards Ukraine, demonstrating a complete disregard to the international rules-based order. The suspension is in response to increased risks and threats to the Union’s security interests and the national security of the Member States as result of Russia’s military aggression against Ukraine. This means that Russian citizens will no longer enjoy privileged access to the EU and face a lengthier, more expensive and more difficult visa application process. Member States will have wide discretion in processing short-stay visa applications from Russian citizens, and will be able to ensure greater scrutiny in respect of Russian nationals travelling to the EU.  The EU will remain open to certain categories of Russian visa applicants travelling for essential purposes, including notably family members of EU citizens, journalists, dissidents and civil society representatives.
The Commission is also presenting today a proposal on the non-recognition of Russian passports issued in occupied areas of Ukraine.
These proposals follow the political agreement reached by Foreign Affairs Ministers at their informal meeting of 31 August on a common and coordinated way forward when it comes to visa issuance for Russian citizens.
Vice-President for Promoting our European Way of Life, Margaritis Schinas, said: “The EU’s visa policy is a mark of trust – a trust that Russia has completely undermined with its unprovoked and unjustified war of aggression against Ukraine. As long as Russia’s military aggression towards an EU candidate country lasts, Russian citizens cannot enjoy travel facilitations to Europe. Once again, the EU is showing its unwavering unity in its response to Russia’s military aggression.”
Commissioner for Home Affairs, Ylva Johansson said: “Russia continues to violate international law with its illegal military actions, committing atrocities against Ukrainians and undermining European and global security and stability. These actions breach the fundamental principles on which the Visa Facilitation Agreement was concluded and go against the interests of the EU and its Member States. Today’s proposal shows a strong and united EU response. We will soon follow up with additional guidelines to ensure enhanced scrutiny on visa applications and border crossings by Russian citizens, without cutting ourselves from Russian dissidents and civil society.”
Ending privileged access to the EU for Russian citizens
The proposal to suspend the Visa Facilitation Agreement will put an end to all facilitations for Russian citizens applying for a short-stay visa to the Schengen area. The general rules of the Visa Code will apply instead.
In practice, Russian applicants will face:

A higher visa fee: The visa fee will increase from €35 to €80 for all applicants.

Increased processing time: The standard deadline for consulates to take a decision on visa applications will increase from 10 to 15 days. This period may be extended up to a maximum of 45 days in individual cases, when further scrutiny of the application is needed.

More restrictive rules on multiple-entry visas: Applicants will no longer have easy access to visas valid for multiple entries to the Schengen area.

A longer list of supporting documents: Applicants will have to submit the full list of documentary evidence when applying for a visa. They will no longer benefit from the simplified list included in the Visa Facilitation Agreement.

The EU has concluded Visa Facilitation Agreements only with a limited number of countries. These Agreements are based on mutual trust and respect of common values between the EU and the given country. Russia’s invasion of Ukraine is incompatible with a trustful relationship and runs counter to the spirit of partnership on which Visa Facilitation Agreements are based. It justifies measures to protect the essential security interest of the EU and its Member States.
Since the beginning of the Russian aggression against Ukraine, the situation has worsened, with tragic humanitarian consequences for civilians and widespread destruction of key infrastructure.
Non-recognition of Russian passports issued in occupied regions of Ukraine
Today the Commission is also proposing a common EU approach for the non-recognition of Russian passports issued in occupied foreign regions, as Russia currently extends the practice of issuing ordinary Russian passports to more non-government-controlled areas of Ukraine, in particular the Kherson and Zaporizhzhia regions. Member States should not recognise Russian passports issued in occupied areas of Ukraine as valid documents for the purpose of issuing a visa and crossing the EU’s external borders. This legislative proposal will ensure a binding approach, applicable in all Member States, replacing the voluntary actions taken by Member States since the illegal annexation of Crimea. This is a further step in the EU’s common response to the Russian military aggression against Ukraine and the Russian practice of handing out passports in occupied foreign regions.
Next Steps
It is now for the Council to examine and adopt the proposal to suspend the Visa Facilitation Agreement. Once adopted, the suspension will enter into force on the second day following its publication in the EU Official Journal.. Russia will be notified of the decision on suspension no later than 48 hours before its entry into force.
It is for the European Parliament and the Council to decide on the proposal on the non-recognition of Russian travel documents issued in occupied foreign regions. The measures will enter into force on the first day following that of their publication in the EU Official Journal.
The Commission will soon present additional guidelines to support Member States’ consulates when it comes to general visa issues with Russia, including to implement the suspension of the Visa Facilitation Agreement.
Background
The EU-Russia Visa Facilitation entered into force in June 2007. It eases the issuance of visas to citizens of the Union and the Russian Federation for intended stays of no more than 90 days in any 180-day period.
As of 1 September 2022, around 963 000 Russians held valid visas to the Schengen area.
At their informal meeting on 31 August, Foreign Affairs Ministers agreed on a common and coordinated way forward when it comes to visa issuance for Russian citizens, including the full suspension of the Visa Facilitation Agreement with Russia. Ministers also agreed that passports issued by the Russian authorities in occupied areas of Ukraine will not be recognised. Visa applications will continue being processed on an individual basis, based on a case-by-case assessment.
The EU had already partially suspended the Visa Facilitation Agreement with Russia on 25 February 2022 as regards Russian officials and business people. Today’s proposal will suspend the Agreement in full, with all facilitations suspended for all Russian applicants.
The proposal on the non-recognition of passports comes after the Commission issued a series of guidelines to Member States in 2014, 2016 and 2019 on how to handle visa applications for residents of Crimea, Donetsk and Luhansk; and on the non-recognition of certain Russian passports.
The Union reiterates its unwavering support to Ukraine’s independence, sovereignty and territorial integrity within its internationally recognised borders.
Compliments of the European Commission.
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Today, the European Union opens its new office in San Francisco, California, a global centre for digital technology and innovation. The office will reinforce the EU’s cooperation with the United States on digital diplomacy and strengthen the EU’s capacity to reach out to key public and private stakeholders, including policy makers, the business community, and civil society in the digital technology sector.
The EU High Representative for Foreign Affairs and Security Policy/Vice-President of the European Commission, Josep Borrell, said: “The opening of the office in San Francisco responds to the EU’s commitment to strengthen transatlantic technological cooperation and to drive the global digital transformation based on democratic values and standards. It is a concrete step to further reinforce the  EU’s work on issues such as cyber and countering hybrid threats, and foreign information manipulation and interference.”
As a world leader in digital solutions and in developing policies and rules that support a human-centric vision of the Internet and digital technologies, the EU has focused on creating valuable partnerships in like-minded countries around the world, notably with the United States.
The opening of the office is a result of the 2021 EU-US Summit shared commitment to strengthen transatlantic technological cooperation and is a core part of the Conclusions on Digital Diplomacy, adopted by EU Foreign Affairs Council in July of this year.
The EU office in San Francisco will seek to promote EU standards and technologies, digital policies and regulations and governance models, and to strengthen cooperation with US stakeholders, including by advancing the work of the EU-US Trade and Technology Council.
The office will work under the authority of the EU Delegation in Washington, DC, in close coordination with Headquarters in Brussels and in partnership with EU Member States consulates in the San Francisco Bay Area. It will be headed by Gerard de Graaf, a senior Commission official who has worked extensively on digital policies, most recently on the EU’s landmark new platform laws, the Digital Services Act and Digital Markets Act. The office will initially be co-located with the Irish Consulate.
Contacts:

Peter Stano, Lead Spokesperson for Foreign Affairs and Security Policy | peter.stano@ec.europa.eu | +32 (0)460 75 45 53

Paloma Hall Caballero, Press Officer for Foreign Affairs and Security Policy | paloma.hall-caballero@ec.europa.eu | +32 (0)2 296 85 60 | +32 (0)460 76 85 60

Compliments of the European Union External Action (EEAS).
The post US/Digital: EU opens new Office in San Francisco to reinforce its Digital Diplomacy first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

The recent plunge in crypto assets has left investors numbed by losses and surely in doubt. But the future of money is undoubtedly digital. The question is, what will it look like? In our latest issue of Finance & Development, some of the world’s leading experts try to answer this complex and politically charged question.
Of course, digital money has been developing for some time already. New technologies hope to democratize finance and broaden access to financial products and services. A main goal is to achieve much cheaper, instantaneous domestic and cross-border payments. The gains could be especially great for people in developing countries.
Cornell’s Eswar Prasad takes us on a tour of existing and emerging forms of digital money and looks at the implications for finance, monetary policy, international capital flows—even the organization of societies.
Not every form of digital money will prove viable. Bitcoin, now down nearly 70 percent from its November peak, and other crypto assets fail as money, says Singapore’s Ravi Menon, among others. While they are actively traded and heavily speculated on, prices are divorced from any underlying economic value. Stablecoins are designed to rein in the volatility, but many have proved to be anything but stable, Menon adds, and depend on the quality of the reserve assets backing them.
Still, journalist Michael Casey argues, decentralized finance and crypto are not only here to stay but can address real-world problems such as the energy crisis.
Regulation is key. The regulatory fabric is being woven, and a pattern is expected to emerge, explain the IMF’s Aditya Narain and Marina Moretti. But the longer this takes, they argue, the more national authorities will get locked into differing regulatory frameworks. They call for globally coordinated regulation to bring order to markets, help instill consumer confidence, and provide a safe space for innovation.
Meanwhile, central banks are considering their own digital currencies. Bank for International Settlements chief Agustín Carstens and his coauthors suggest that central banks should harness the technological innovations offered by crypto while also providing a crucial foundation of trust. Privacy and cybersecurity risks can be managed with responsibly designed central bank digital currencies, adds the Atlantic Council’s Josh Lipsky.
Elsewhere in the issue, our contributors look at the benefits and drawbacks of decentralized finance, the future of cross-border payments, and how India and countries in Africa are advancing the digital payment frontier.
It’s too early to tell how the digital landscape will evolve. But with the right policy and regulatory choices, we can imagine a future with a mix of government and privately backed currencies held safely in the digital wallets of billions of people.
Thank you, as ever, for reading us.
Author:

Gita Bhatt is the Head of Policy Communications and Editor-In-Chief of Finance & Development Magazine

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The European Securities and Markets Authority (ESMA), the EU’s securities markets regulator, today publishes the second Trends, Risks and Vulnerabilities (TRV) Report of 2022. The Russian war on Ukraine against a backdrop of already-increasing inflation has profoundly impacted the risk environment of EU financial markets, with overall risks to ESMA’s remit remaining at its highest level.
In the first half of 2022 financial markets saw faltering recoveries, increasing volatility and likelihood of market corrections. Separately, crypto-markets saw large falls in value and the collapse of an algorithmic stablecoin, highlighting again the very high-risk nature of the sector.
Verena Ross, Chair, said:
“The current high inflation environment is having impacts across the financial markets. Consumers are faced with fast rising cost of living and negative real returns on many of their investments. Consumers also need to watch out as they might be targeted by aggressive marketing promoting high-risk products that may not be suitable for them.
The Russian invasion of Ukraine continues to significantly affect commodity markets, leading to rapid price increases and elevated volatility. These present liquidity risks for exposed counterparties and show the continued importance of close monitoring to ensure orderly markets, a core objective for ESMA.”
Risk summary and outlook
The overall risk to ESMA’s remit remains at its highest level. Contagion and operational risks are now considered very high, like liquidity and market risks. Credit risk stays high but is expected to rise. Risks remain very high in securities markets and for asset management. Risks to infrastructures and to consumers both remain high, though now with a worsening outlook, while environmental risks remain elevated. Looking ahead, the confluence of risk sources continues to provide a highly fragile market environment, and investors should be prepared for further market corrections.
Main findings
Market environment: The Russian aggression drove a commodities-supply shock which added to pre-existing pandemic-related inflation pressures. Monetary policy tightening also gathered pace globally, with markets adjusting to the end of the low interest rates period.
Securities markets: Market volatility, bond yields and spreads jumped as inflation drove expectations of higher rates, equity price falls halted the recovery that had started in 2020, and invasion-sensitive commodity values surged, particularly energy, impacting natural gas derivatives and highlighting liquidity risks for exposed counterparties.
Asset management: Direct impacts of the invasion were limited but the deteriorating macroeconomic conditions amplified vulnerabilities and interest rate risk has grown with expectations of higher inflation. Exiting the low-rate environment presents a medium-term challenge for the sector.
Consumers: Sentiment worsened in response to growing uncertainty and geopolitical risks. The growing volatility and inflation could negatively impact many consumers, with effects potentially exacerbated by behavioural biases. Household savings fell from the record highs of the pandemic lockdowns.
Sustainable finance: The invasion presented a new major challenge to EU climate objectives as several member states turned to coal to compensate for lower Russian fossil fuel imports. Although EU ESG bond issuance fell and EU ESG equity funds experiencing net outflows for the first time in two years, funds with an ESG impact objective were largely spared and the pricing of long-term green bonds proved resilient.
Financial innovation: Crypto-asset markets fell over 60% in value in 1H22 from an all-time-high, amid rising inflation and a deteriorating outlook. The sharp sell-off, the Terra stablecoin collapse in May, and the pause in consumer withdrawals by crypto lender Celsius, added to investor mistrust and confirmed the speculative nature of many business models in this sector.
Compliments of the European Securities and Markets Authority, European Commission.
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Major economies sharply increased support for the production and consumption of coal, oil and natural gas, with many countries struggling to balance longstanding pledges to phase out inefficient fossil fuel subsidies with efforts to protect households from surging energy prices, according to analysis released today by the Organisation for Economic Co-operation and Development and the International Energy Agency.
New OECD and IEA data show that overall government support for fossil fuels in 51 countries worldwide almost doubled to 697.2 USD billion in 2021, from 362.4 USD billion in 2020, as energy prices rose with the rebound of the global economy. In addition, consumption subsidies are anticipated to rise even further in 2022 due to higher fuel prices and energy use.

“Russia’s war of aggression against Ukraine has caused sharp increases in energy prices and undermined energy security. Significant increases in fossil fuel subsidies encourage wasteful consumption though, while not necessarily reaching low-income households,” OECD Secretary-General Mathias Cormann said. “We need to adopt measures which protect consumers from the extreme impacts of shifting market and geopolitical forces in a way that helps keep us on track to carbon neutrality as well as energy security and affordability.”
“Fossil fuel subsidies are a roadblock to a more sustainable future, but the difficulty that governments face in removing them is underscored at times of high and volatile fuel prices. A surge in investment in clean energy technologies and infrastructure is the only lasting solution to today’s global energy crisis and the best way to reduce the exposure of consumers to high fuel costs.” IEA Executive Director Fatih Birol said.
The OECD and IEA produce complementary databases that provide estimates of different forms of government support for fossil fuels. The current OECD-IEA combined estimates cover 51 major economies, spanning the OECD, G20 and 33 other major energy producing and consuming economies representing around 85% of the world’s total energy supply.
OECD analysis of budgetary transfers and tax breaks linked to the production and use of coal, oil, gas and other petroleum products in G20 economies showed total fossil fuel support rose to USD 190 billion in 2021 from USD 147 billion in 2020. Support for producers reached levels not previously seen in OECD tracking efforts, at USD 64 billion in 2021 – up by almost 50% year-on-year, and 17% above 2019 levels. Those subsidies have partly offset producer losses from domestic price controls as global energy prices surged in late 2021. The estimate of consumer support reached USD 115 billion, up from USD 93 billion in 2020.
The IEA produces estimates of fossil fuel subsidies by comparing prices on international markets and prices paid by domestic consumers that are kept artificially low using measures like direct price regulation, pricing formulas, border controls or taxes, and domestic purchase or supply mandates. Covering 42 economies, the IEA finds that consumer support increased to USD 531 billion in 2021, more than triple their 2020 level, driven by the surge in energy prices.
The OECD and IEA have consistently called for the phasing out of inefficient fossil fuel support and re-direction of public funding toward the development of low-carbon alternatives alongside improvements in energy security and energy efficiency. Subsidies intended to support low-income households often tend to favour wealthier households that use more fuel and energy and should therefore be replaced with more targeted forms of support.
Read more at: www.oecd.org/fossil-fuels/.
For further information, journalists are invited to contact Catherine Bremer in the OECD Media Office (+33 1 45 24 97 00) or Merve Erdil at the IEA Press Office (+33 1 40 57 66 94).
Compliments of the OECD.
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